Egypt’s LNG Exports to Europe Halted Amid Declining Production
As summer approaches, Egypt faces a significant challenge in its liquefied natural gas (LNG) sector. The nation is expected to halt LNG exports to Europe due to a decline in production at its largest gas field, Zohr. The field’s output has dwindled to 2 billion cubic feet per day and is anticipated to drop further to 1.6 billion cf/d by the end of 2024, a stark contrast to its initial design capacity.
The Zohr field, once celebrated for its potential, has seen its proved reserves downgraded to 10.9 trillion cubic feet (tcf), a substantial decrease from the 30 tcf announced by Eni in 2016. This reevaluation places Zohr behind Israel’s Leviathan and Tamar fields in terms of size.
Amid these setbacks, including the unsuccessful exploration of the Orion well by Eni, Egypt remains in search of significant gas discoveries to bolster its waning production. Chevron, however, has stepped in with a commitment to invest $3 billion over the next two years to develop the Nargis gas field, starting in the first half of 2024.
Further support comes from the European Union, with Commission President Ursula von der Leyen announcing a €7.4 billion aid package aimed at strengthening Egypt’s economy, curbing migration, and enhancing energy sales to Europe. This move underscores Egypt’s strategic importance for regional stability.
Global Natural Gas Demand and Market Dynamics
The Gas Exporting Countries Forum (GECF) forecasts a 34% increase in global natural gas demand by 2050. Meanwhile, European TTF gas prices remain relatively low at about €24.50 per MWh. In contrast, Qatar is expanding its LNG capacity significantly, aiming to reach 142 million tonnes per year by 2030, while the United States maintains a pause on its LNG expansion plans.
Notably, China and India have seen substantial increases in their LNG imports, with a 15% and 33% rise respectively in February year-on-year.
EU Energy and Climate Policy Challenges
Germany is adapting its energy strategy by planning a fleet of gas-fired, hydrogen-ready power plants to stabilize electricity production and facilitate the transition to renewables. However, questions remain about the impact on its net-zero ambitions. The country has also secured LNG agreements extending past 2040 to enhance energy security.
With the upcoming European elections, there is a strong focus on transforming the European Commission into a geopolitical entity that prioritizes defense and economic security, potentially overshadowing the Green Deal.
Europe’s reliance on hydrocarbon imports persists, with clean energy not replacing them swiftly enough. This dependency is compounded by competitive pressures from China and investment surges in the US. As Europe grapples with these challenges, the European Central Bank warns of tougher times ahead for eurozone lenders due to rising insolvencies and geopolitical risks.
The EU is pressuring importers to reduce Russian LNG imports and is facing increased electricity costs due to carbon taxes. Industrial output in Europe has struggled to rebound after the 2022 energy crisis, with Germany being a significant contributor to the downturn.
US and China Adjust to Shifting Energy Landscape
In the US, solar generation is on the rise, expected to account for 6% of electricity generation in 2024. Despite a pause in new LNG production initiatives by President Biden’s administration, Venture Global is expanding its sales operations by acquiring nine LNG vessels.
Concurrently, China’s industrial production has surged by 7% year-on-year, leading to a 15% increase in LNG imports as the country leverages lower spot prices to meet its growing energy needs.
Dr Charles Ellinas, Senior Fellow at the Global Energy Center, Atlantic Council
X: @CharlesEllinas
